Here Are Some Answers to Frequently Asked Questions About Our Solo 401k Plans:
Q: Who is the Custodian of the 401k Plan?
A: Your current Banking Institution can be your Custodian; and we will show you how to set that up with your Bank. This is the option that you will use if your goal is to get your investment funds out of the Wall Street Marketplace to invest your retirement funds in alternatives such as Real Estate, precious metals, etc. Please Note: OtherWise Financial will also advise you on better Brokerage Account alternatives as well. Interactive Brokers and Robinhood are cost effective alternatives just to name a couple.
Q: Who is the Administrator of the 401k plan?
A: You are the "Plan Administrator" as that term is used in the Federal Law known as "ERISA".
We have setup kits for our Solo 401k plans at TD Ameritrade, Fidelity, Schwab and Vanguard among many others (if you do not see your favorite brokerage or custodian listed here, simply request it from us. You can also choose just about any mutual fund company, fund supermarket, brokerage house or custodian you wish, to serve as the custodian of the assets in your 401k plan. You may call or email us at firstname.lastname@example.org.
Our Solo 401k Plans are not available directly from these custodians. In order to participate in a Solo 401k, you must have established a qualified employer sponsored retirement plan before opening an investment account. That is where we come in. We set up your qualified employer sponsored retirement plan (401k plan) that then allows you to become eligible to participate in the various retirement investment accounts.
Q: Where do I mail the account enrollment forms?
A: OtherWise Financial Group 9025 Wilshire Blvd. Suite 500 Beverly Hills, CA 90211. You can also email your documents to
Q: I am a Subchapter S Corporation. Can I have a Solo 401k?
A: Yes. Sole proprietors, partnerships, corporations (including S-corporations), LLC’s, and LLP’s may all establish 401k plans.
Q: What about tax returns for the 401k plan, who handles those?
A: We prepare your 401k plan tax return at no additional charge. (Although it is an IRS form, (IRS Form 5500 or Form 5500 EZ) since no tax is due, it is actually an "informational return" and it is filed with the Department of Labor. When the plan assets exceed $250,000, the Trustee or Administrator of your Company 401k prepares the IRS Form 5500 or Form 5500EZ and accompanying schedules.
(If you had to prepare the Form 5500 yourself bear in mind that the IRS estimates the average time to complete and file a Form 5500 is 18 hours and 10 minutes for recordkeeping, 2 hours and 49 minutes for learning about the law or the form, 5 hours and 6 minutes preparing the form and 32 minutes for copying, assembling and sending the form. That is a total of 26 hours and 37 minutes. We prepare your plan informational return for you at no additional charge.
The Pension Protection Act of 2006 (signed into law in August of 2006) states, "The Secretary of the Treasury is directed to modify the annual return filing requirements with respect to a one-participant plan to provide that if the total value of the plan assets of such a plan as of the end of the plan year does not exceed $250,000, the plan administrator is not required to file a return. This provision relating to one-participant retirement plans is effective for plan years beginning on or after January 1, 2007.
Q: Is there an additional fee for the preparation of the Form or Form 5500EZ?
Q: Can my spouse participate in my Solo 401k plan?
A: If your spouse earns income from your business, your spouse can participate.
Q: Is there an additional fee for my spouse to participate in my Solo 401k plan?
A: There is no set up fee or termination fee, just the annual 25 basis points fee (1/4th of one percent). Each participant in a Solo 401k plan incurs the annual 25 basis points fee (1/4th of one percent) with a minimum annual fee of $100; if the Company 401k Trust is not set up at a bank. OtherWise Financial Charges $100 Annually to participating Companies.
Q: What about tax or informational returns if my spouse participates in my Solo 401k?
A: Unlike the case of employing your child, (see below) when you employ only your spouse, informational returns are currently not required until the plan assets exceed $250,000. When the plan assets exceed $250,000, the Trustee or Administrator of your Company prepares the IRS Form 5500 (or Form 5500 EZ) for you to sign and submit. The Pension Protection Act of 2006 (signed into law in August of 2006) states, "The Secretary of the Treasury is directed to modify the annual return filing requirements with respect to a one-participant plan to provide that if the total value of the plan assets of such a plan as of the end of the plan year does not exceed $250,000, the plan administrator is not required to file a return. This provision relating to one-participant retirement plans is effective for plan years beginning on or after January 1, 2007.
Q: What if I have partners? Can I still have a Solo 401k plan?
A: You can have an OtherWise Financial Solo 401k plan with just one or more business partners and no other employees. It will not be subject to top heavy testing, and the anti-discrimination rules as long as your partners are 5% or greater owners or are "highly compensated" (receives more than $100,000 in income from the business (2006) and you have no other employees other than your partners.
Q: Can a non-profit sponsor a 401k, including a Solo 401k?
A: Yes. I.R.C. §401(k)(B)(i) pertaining to eligibility of state and local governments and tax-exempt organizations specifically makes tax-exempts eligible sponsors of 401k retirement plans. "...Except as provided in clause (ii), any organization exempt from tax under this subtitle may include a qualified cash or deferred arrangement as part of a plan maintained by it..."
Q: Is there a mandatory minimum that I must contribute?
A: No. Contribution amounts are completely flexible. If you had a good year, you can put in more, up to the limits. You can always put in less or nothing at all.
Q: How much to open an account?
A: To open an account, Ameritrade & Schwab require $250, and E*Trade & Vanguard both require at least $1,000. First time investments in fund selections must meet initial fund minimums (mostly $3,000 at Vanguard, although one Vanguard fund has a $1,000 minimum, the Star Fund). Once you have opened your account and met the initial minimum for a particular fund, you may thereafter invest less than the initial minimum. Please Note: If you open your Company Solo 401k at your current Banking Institution; this information does not apply.
Q: Do I have to the ability to alter the amount I contribute at any time?
Q: Where do I send contribution or rollover checks?
A: Do not send an initial contribution with your application to OtherWise Financial. Your new Solo 401k plan needs to be established (by signing a 401k plan and trust adoption agreement before you may contribute to it. Accordingly, after your account is set up send contribution and rollover checks electronically or by paper check to your established Custodian.
Q: Who is the trustee and account owner?
A: You are the trustee and account owner.
Q: Do 401k Plan Trustees need to be bonded?
A: (Solo 401k Plan Trustee need not be bonded)
Q: Do I need to have an Company Employer Identification Number ("EIN") (also known as a Taxpayer Identification Number "TIN") to open a Solo 401k or, as a Sole Proprietor can I use my Social Security Number?
A: Yes, You can apply for a Company "EIN" or a Plan "EIN" (a tax identification number specifically for you 401k plan) online hereor at ww4.irs.gov/sa_vign/newFormSS4.do. As part of our administrative service, at no additional cost to you, we will apply for a plan EIN on your behalf. (The EIN can be for the 401k plan itself or for the company).
In any event, you must have a Company EIN or a Plan EIN if a tax return must be filed for your plan as the IRS does not allow the plan tax return to be filed under a Social Security Number.
Q: Who makes the investment decisions?
A: You or your advisors make the investment decisions. OtherWise Financial does not make investment decisions for you; but will offer investment options free of charge. OtherWise Financial will also help you understand the most cost effective Brokerage Account structures; and why all Brokerage Account structures are not created equal.
Q: What are the total fees and costs?
A: There is a one-time set up fee for any of our 401k plans; and that cost is $499.00. There are no other costs associated with the Solo 401k set up unless you need assistance setting up an LLC; and you decide not to have your Bank be your Company’s Custodian. OtherWise Financial Charges $100 Annually to participating Companies.
Q: Is my Solo 401k or Company 401k protected from my creditors?
A: Yes. On April 20th, 2005 the President signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“Act”). The Act makes significant changes in the bankruptcy rules, including adding specific protections for retirement plans. The Act goes into effect for bankruptcy petitions filed after October 16, 2005. The new law exempts from the bankruptcy estate assets held by a qualified plan (Solo 401k or Company 401k), 403(b) plan, 457 plan or IRA (traditional, Roth, SEP and SIMPLE). The effect of the exemption is to place retirement plan assets beyond the reach of creditors during or after a bankruptcy proceeding. The exemption for retirement plan assets applies irrespective of whether the debtor elects the federal or state bankruptcy exemptions. However, the new law contains an exception for federal tax liens and limits the application of the exemption for IRAs to $1,000,000. The new law imposes no dollar limitation on the exemption for other retirement plans (Solo 401k or Company 401k). Amounts directly rolled over to another retirement plan (i.e. into a Solo 401k or Company 401k) or IRA qualify for the exemption as do amounts distributed and rolled over within the 60-day rollover period.